Monsanto Buying Dekalb Genetics, Delta & Pine

Agribusiness giant Monsanto Co. wiped out any doubts that genetically altered crops are a top-priority business by announcing plans Monday to buy two seed companies for $4 billion in cash and stock.

St. Louis-based Monsanto will pay $100 a share for the 60 percent it doesn't already own of Dekalb Genetics Corp., a huge producer of seed corn based in De Kalb. The all-cash deal is valued at $2.3 billion. Dekalb put itself up for sale in February, and Monsanto was considered from the start to be the likely buyer.

But the $100-a-share price was much higher than analysts had expected--a 30 percent premium over Dekalb's Friday close of $77--lending credence to unconfirmed reports that there had been lively bidding for the company.

Monday's announcement puts a total value of $3.7 billion on Dekalb, including the 40 percent stake Monsanto bought earlier. Only days ago, analysts were expecting the company to cost no more than $3 billion altogether.

In a surprise move, Monsanto also announced plans to buy Delta & Pine Land Co., a Scott, Miss.-based producer of cotton seed. Monsanto already owns about 4.7 percent of the company, and the two companies jointly introduced the first insect-resistant cotton in 1996.

Monsanto declined to put an exact value on the transaction, noting that it can change as the price of Monsanto shares changes. But at Monday's price of Monsanto shares, the deal would be valued at about $1.76 billion--a 13 percent discount to Delta & Pine's Friday close of $52.75. Delta & Pine stockholders will trade in their shares for 0.86 Monsanto shares each.

"No one will argue that this wasn't a fair price for Dekalb," said analysts John McMillin of Prudential Securities. "A few might argue about the Delta price."

After the buyouts, both companies will continue to operate under their original names with current management, said Monsanto spokeswoman Scarlett Foster.

Monsanto said Dekalb's 2,000 employees are guaranteed their jobs for at least a year after the closing. Delta & Pine has 760 employees.

Both deals are subject to shareholder approval. But the Dekalb transaction is a certainty, because trusts that hold 56 percent of the outstanding Class A voting shares already have agreed to the deal. The trusts benefit the Roberts family--descendants of early owners of the company.

Monsanto said Dekalb's 2,000 employees are guaranteed jobs for at least a year after the closing.

Dekalb will be acquired by a new Monsanto subsidiary being established for this purpose. Delta & Pine will be merged into Monsanto.

The two transactions are key to Monsanto's strategy of expanding its bioengineered plant operations. Both companies already produce Roundup Ready seeds--cotton and corn seed that produce crops resistant to Monsanto's Roundup weed killer.

Monsanto said this type of bioengineering is the "first wave" of its strategy. The next step is to introduce traits that "improve the composition of fibers, the nutritional composition of food and feed, and offer food processers new tools to enhance the value of grains and oil-seed crops."

Acquiring Dekalb and Delta & Pine gives Monsanto a guaranteed large and steady supply of seed to use to breed these new traits.

Ultimately, Monsanto said such deals can link its operations in agriculture, pharmaceuticals and food.

Analysts applauded Monsanto's strategy, saying the company will have strong bases in all the major crops.

McMillin called Monsanto "the Pac-Man of the industry."

Other biotech companies "will be forced to play the game or get out," said Sano Shimoda, president of BioScience Securities Inc. "Everyone is going to have to scramble because the opportunities to build a strategic position in this industry are going to dwindle."